Real Estate LLC - Does It Work For Real Estate Protection?

Question

https://www.youtube.com/watch?v=0Ij2oRmz35o

Do you need an LLC for real estate? Does it really protect you, and what can happen to you if you invest in real estate without using and LLC?

What do you think? thoughts

Frank Chin · Answer

If you are not going to have any partners to start out, only yourself, for the first several properties, I'll skip it. For asset and liability protection, get plenty of good insurance. But the most important thing is get a good insurance agent.

I spoke about this before, if you have an LLC and the LLC gets sued, they'll sue you personally as well. All attorneys do that. I bought a business from a couple who thought the S Corp they had would give them protection, and little did they know they got sued personally along with the S Corp.

OK, they got insurance as well. However, the insurance only covered the S Corp, not themselves personally. When I learned of their problem, I called me insurance agent to make sure I was insured along with my LLC that took over the business. My agent told me that there's an endorsement in the policy covering the LLC that also covers the owners, I.e. me. That's why having a sharp experienced insurance agent is most important. My agent told me either the agent they used is an idiot, or they didn't used one, like calling GEICO on an 800 number.

When you start out, the LLC would make it harder for you to get a mortgage, and in some cases, insurance.

The theory behind suing you personally in particular is when you self manage, and you are personally negligent, like not shoveling snow fast enough after a snow storm. If you have a PM on the other hand, they are covered under their liability insurance. Then someone coming after you would sue the LLC and the PM. If you use a PM, you're just an investor who, for instance, doesn't have to shovel snow..

I operated under LLC's, S Corps and C Corps, at one point all three, in the course of my business career, but did not use LLC's for my real estate business.